The Importance Of Being Einhorn

Steve Schaefer
,
Forbes Staff
If you can put the word markets after it, I cover it.

Einhorn, center, during his 2011 pursuit of a part ownership of the New York Mets. (Image credit: Getty Images via @daylife)

When David Einhorn speaks, the market tends to listen. The billionaire hedge fund manager, like others of his ilk, can move markets with what he says, and sometimes more importantly what he doesn’t say.

The latest example came Wednesday, when Einhorn made no mention of Herbalife during his presentation at the Ira Sohn Investment Conference in New York. Shares of the nutritional supplements seller were up throughout the session then made even bigger gains during Einhorn’s remarks to close the day with a 16.7% gain.

That was a far cry from May 1, when the stock tanked after Einhorn questioned company executives about metrics used to tally customers on a conferene call following Herbalife’s first-quarter earnings report. Those questions prompted many to assume Einhorn was doing his homework for a short position in the company’s shares, a possibility his Greenlight Capital hedge fund has neither confirmed nor denied. (At the time a spokesman for Einhorn declined comment when contacted by Forbes.)

Wednesday’s action in Herbalife reinforced the impact the remarks of high-profile money managers can have on the market, from Einhorn to fellow hedge fund heavyweights like John Paulson, David Tepper and Bill Ackman, among others, who have seen their moves mimicked by other investors. (The reigning king of this is Warren Buffett, whose annual shareholder letters and meetings are practically treated as holidays by many value investors.)

Einhorn clearly had an impact on Herbalife shares Wednesday without so much as mentioning the stock, but some other names he actually did discuss were on the move as well. Forbes’ Agustino Fontevecchia, who was at the conference, reports that Einhorn made a bullish case for Apple shares, arguing the company still has a huge opportunity in China and the tablet space, and that there is no reason why its market cap can’t rise above $1 trillion. Apple, stumbling downhill for much of the session, cut its loss to 1.3% late in the day. With shares at $546.08, the nearly 1.5 million share stake Greenlight had at the end of the first quarter would be worth a hair below $800 million. (See "Einhorn Says No Reason Apple Can't Be Worth $1 Trillion.")

US Steel and Martin Marietta Materials were not as fortunate, losing 4.9% and 8.2% on the day after harsh words from Einhorn. Joshua Brown, who offers up his notes on the conference over at his Reformed Broker blog, reports the hedge fund manager warned about the impact of China’s slowdown on U.S. Steel and that Martin Marietta’s valuation is stretched (and its CEO is a megalomaniac).

While the impact in Wednesday’s trading offers a reminder of the herd mentality that can take over when a well-regarded investor takes a stand in a particular stock, it is crucial to remember that no money manager is infallible.

For proof just look back a year. Einhorn touted the merits of a pair of stocks at the 2011 Ira Sohn conference. He nailed his Microsoft call (+27%), but his advice to buy Dutch insurance firm Delta Lloyd fell flat (-25%). He was hardly the only presenter at last year’s even to have a misfire, according to a great chart put together by Absolute Return’s Lawrence Delevingne. That is as good a reminder as any that investing isn’t as simple as riding the coattails of celebrated money managers, especially on a single stock.